Steffy: In the dark in assessing financial risk of offshore disasters

Published 11:53 pm, Friday, August 3, 2012

Photo: Gerald Herbert

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A smoke plume rises from the Deepwater Horizon as the disaster unfolds in the spring of 2010. The European investment bank Societe Generale has estimated that including the effect on BP's stock, the disaster cost the company $86 billion. less

A smoke plume rises from the Deepwater Horizon as the disaster unfolds in the spring of 2010. The European investment bank Societe Generale has estimated that including the effect on BP's stock, the disaster ... more

Photo: Gerald Herbert

Steffy: In the dark in assessing financial risk of offshore disasters

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Slipped into BP's dreadful second-quarter earnings was yet another charge for the still-rising costs of the Deepwater Horizon disaster.

Compared with other financial concerns BP faced in the quarter, the $847 million charge was minor, but it also called into question earlier statements by CEO Bob Dudley that the oil company had "turned the corner" in recovering from the accident two years ago.

A day later, Transocean, which owned the Deepwater Horizon, took a $750 million charge related to the accident.

Both are reminders of the lingering costs of catastrophe. As the industry wrestles with how to prevent the next disaster, investors are scrambling to identify safety risks and assess their potential financial impact.

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The costs, of course, are huge. BP has earmarked about $38 billion for expenses related to the accident, but that doesn't include the British oil giant's lost market value in the past two years.

BP's shares have shed about one-third of the value they had before the accident. When that loss is compared with the rising value for other major oil companies such as Exxon Mobil during the same period, the true cost of the Deepwater Horizon disaster soars to $86 billion, according to an analysis by the European investment bank Societe Generale.

Yet investors have scant information with which to assess such potential costs, according to a study released Thursday by Ceres, a coalition of investors, companies and public interest groups that focus on sustainable business practices.

Found wanting

Ceres analyzed safety and environmental risk disclosures in the regulatory filings of 10 big energy companies - Apache, BP, Chevron, ConocoPhillips, Eni, Exxon Mobil, Marathon, Shell, Suncor and Total - and found that seven provided no information on the development of safety programs. The other three offered only broad statements about safety but no data or details.

"There tends to be very little disclosure with concrete numbers, either financial risk or financial impact," said Jim Coburn, one of the study's authors and director of Ceres' corporate disclosure program.

BP, the study found, offered the best assessment of drilling risk management. Although its disclosures improved after the Deepwater Horizon disaster, investors still have difficulty determining risks because the Securities and Exchange Commission doesn't require uniformity in the disclosures.

That means investors can't compare safety practices, for example, to determine if a company is deficient. Without better disclosure of information such as environmental and safety statistics, data on spill response prevention and preparation, details of oversight programs and details of safety program development, it's difficult for investors to know if BP is actually improving safety or simply talking about it, he said.

Widespread resistance

The lack of disclosure is part of lingering resistance to greater transparency that continues to pervade much of the offshore industry, David Pritchard, a Houston petroleum engineer and drilling safety expert who wasn't involved in the Ceres study, told me last week.

Some companies have revised procedures on the rig floor or analyzed the effectiveness of safety equipment such as blowout preventers, but they have spent less time looking at how the early stages of the drilling process, such as well design, can contribute to accidents, Pritchard said.

Companies - both producers and rig operators - react more to short-term costs. Because of the huge expense of deep-water drilling, they focus on reducing the time that rig sits idle, for example. Yet Pritchard estimates that the savings from such programs is minimal when weighed against the cost of a catastrophe.

"It's just simple math and a no-brainer," he said.

Essential to prevention

Ceres' findings and Pritchard's analysis dovetail with the recent conclusions of the U.S. Chemical Safety Board. Its investigation of the Deepwater Horizon accident found that the industry needs to better track safety incidents and "near misses" so it can better identify and prevent safety lapses.

"Anything that these companies can do to be more transparent and show they're handling the risks well is in their interests," Coburn said.

As BP and Transocean are finding, the costs from a disaster like the Deepwater Horizon tend to linger for investors long after the damage checks are written.

Loren Steffy, loren.steffy@chron.com, is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Follow him online at blog.chron.com/lorensteffy, www.facebook.com/LorenSteffypage and twitter.com/lsteffy.